Gurgaon housing market: Where to from here?

Real estate forecasting in India is a difficult proposition at the best of times, but never more so than postdemonetisation. We are faced with numerous unknown variables. For Gurgaon, this is compounded by state of the market pre-November 8.

2016 has not been the best of years for the Gurgaon residential real estate market. Sales volumes plummeted further to nearly half the peak absorption numbers. New unit launches were very limited, estimated at one-third the 2015 figure.

While quoted prices remained stable, good discounts and incentives were available during private negotiations with developers. Once again, speculators who had fuelled demand during the boom stayed away from residential markets. Primary buyers of residential real estate were end users, who preferred to ready or near ready-to-move-in apartments.

Buyers today are well-informed and give greater credence to both brand and quality . They are sceptical of talks of future infrastructure upgrades or other such promises.

Post-demonetisation, Gurgaon, like the rest of the country, is grappling to formulate new rules of business for real estate. How do we factor in the black component of the price now? Is the new price arrived at by simply subtracting black money or will black money be back in vogue in the form of the new pink currency?Buyers believe prices will fall by 2030% and are thus holding out for the markets to crash. Sellers, on the other hand, are resisting dropping prices, counting on banks to lower home loan rates and on the government to deliver a populist budget -one that will reduce income tax rates and increase the tax-free slab. Markets are in the phase of price discovery , leading to a complete standstill.

In our opinion, expect a period of muted demand. However, we do not subscribe to the view that prices will crash. We may see the odd steeply discounted secondary market transaction and marginal correction in prices. This is because while demand is and will remain low for some time, we foresee new supply to be extremely limited for a protracted period.

This is not just due to demonetisation but also attributed to the Real Estate (Regulation & Development) Act, expected to be implemented by Haryana by April 30, 2017. Gurgaon will follow the global trend of new regulations, inevitably leading to developers holding off launches to see how authorities enforce new rules.

This, in turn, will result in slowly reducing the inventory overhang. For 2017 at least, inventory overhang will be an irrelevant measure of market health. Demand today lies in near-ready projects and bulk of the unsold inventory is under construction. Fundamentals driving Gurgaon's market are strong. Nearly 5 million sq ft office space was absorbed in the past three to four years. 2017 should see this trend continue -in part due to lack of quality office supply in Bengaluru, Pune and Hyderabad.However, the government must deliver all promised infrastructure.

To avoid generation of black money, the government needs to align circle rates with market rates -the gap in Gurgaon is among the highest in the metros. Stamp duty should also be reduced. Consumers will reward a good and cost-effective product delivered on time. RERA, the amended benami bill and demonetisation should together make realty more attractive in the long run.

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